Correlation Between Ford and ENRG Elements

Can any of the company-specific risk be diversified away by investing in both Ford and ENRG Elements at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ford and ENRG Elements into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ford Motor and ENRG Elements Limited, you can compare the effects of market volatilities on Ford and ENRG Elements and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ford with a short position of ENRG Elements. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and ENRG Elements.

Diversification Opportunities for Ford and ENRG Elements

0.32

Correlation Coefficient

Ford  ENRG Elements

Weak diversification

The 3 months correlation between Ford and ENRG is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and ENRG Elements Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENRG Elements Limited and Ford is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ford Motor are associated (or correlated) with ENRG Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENRG Elements Limited has no effect on the direction of Ford i.e., Ford and ENRG Elements go up and down completely randomly.

Pair Corralation between Ford and ENRG Elements

Taking into account the 90-day investment horizon Ford is expected to generate 38.89 times less return on investment than ENRG Elements. But when comparing it to its historical volatility, Ford Motor is 8.67 times less risky than ENRG Elements. It trades about 0.05 of its potential returns per unit of risk. ENRG Elements Limited is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  0.10  in ENRG Elements Limited on October 25, 2024 and sell it today you would earn a total of  0.06  from holding ENRG Elements Limited or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Ford Motor  vs.  ENRG Elements Limited

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

ENRG Elements Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ENRG Elements Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, ENRG Elements reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and ENRG Elements

The main advantage of trading using opposite Ford and ENRG Elements positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, ENRG Elements can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ENRG Elements will offset losses from the drop in ENRG Elements' long position.

The idea behind Ford Motor and ENRG Elements Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.